We need to invest dramatically in green energy, making solar panels so cheap that everybody wants them. Nobody wanted to buy a computer in 1950, but once they got cheap, everyone bought them.
While there is no “green IRA”, you can pick a mutual fund, such as the ones mentioned above, or select stocks yourself in within your IRA or Roth IRA (see To Roth or Not to Roth). That is, when you contribute cash to your IRA, it sits in a money market account, doing little until you invest it.
For an increasing number of investors, “doing good” with their investments is as important as doing well.
Tapping into this new environmentally conscious market, more not-for-profit organizations are teaming up with money managers to create a new line of impact investments. Here are some examples:
Aquinas Funds; and
Caution: before you pick any, use a resource to evaluate and compare, such as Kiplinger’s
Here are the steps to invest in environmentally conscious companies:
1. Select type of IRA: Before opening and IRA, decide whether a Roth IRA or a traditional IRA suits your needs (see the Financial Literacy post).
2. Open an IRA: Opening an IRA has never been easier. You can contact a financial institution, by phone or online, that offers IRAs, usually a bank, brokerage or mutual fund company. Do your research and be sure the broker offers a self-directed IRA, so you can pick your investment options. Also, be mindful of fees charged for trades, that is the buying and selling of stocks or funds. You want a discount broker. Finally, name beneficiaries in case something happens to you.
3. Choose your Investments: Your IRA can be made of stocks, mutual funds or a mixture. In choosing stocks, experts such as Jennifer Schonberger of The Motley Fool, suggest that you focus on particular countries as you make green stock or mutual fund selections for your IRA. She notes that China is an innovator in green technology, though it is also known as one of the world’s biggest polluters.
4. Fund your Account: Make a plan to fund your account and stick to it! Starting early and contributing regularly can have an enormous impact your account’s value due to tax-free compounding of returns (see “Save 10% of Income”).
As with any stock market investing, your Green IRA may show you a roller coaster ride of value swings; however, if you have a long-term horizon, the significant growth potential should out-weigh this volatility risk. Also, if you pick a loser, you can always sell your investment (tax-free) and invest in another. Good luck!